These personal tragedies can be life changing, which come with their own challenges, but hopefully the intention is for the settlement to fund the beneficiaries’ needs for the rest of their lives.
It is quite common for the compensation amount to be allocated to a Personal Injury Trust, as it will then be ignored when assessing the entitlement of the beneficiary to means-tested benefits and Local Authority funded care.
In addition, there are practical advantages in that the beneficiary may be very young or lack mental capacity and, therefore, would benefit from trustees handling their financial affairs.
Personal Injury Trusts – Duties of the trustees
The trustees have a duty to ensure that the assets are being invested appropriately according to the investment objectives and risk profile for the Trust, with the ultimate purpose to provide for the beneficiary.
The Trustees must use their utmost diligence to avoid any loss and will be liable to the beneficiaries for any breach of this duty. Therefore, as part of the Trustees role, it is essential that the proper duty of care is taken.
The Trustee Act 2000 (England & Wales) states that trustees must:
- Pay heed to standard investment criteria, namely have regard to the suitability of the investment to the Trust and the need for diversification, to the extent it is appropriate for the circumstances;
- Ensure that they monitor investments regularly and vary them if appropriate; and
- Obtain and consider proper advice about how the power to invest should be exercised or the investments of the Trusts varied.
Cash flow modelling for a Personal Injury Trust
Deciding how and where to invest the money can be a challenge and one that can be handled by a professional Independent Financial Adviser.
For the Financial Adviser, the aim is in providing a lifetime income from the Personal Injury Trust fund with access to capital on an ad hoc basis. Therefore, advice will be provided in relation to the asset allocation, investment management and tax position.
A detailed cash flow modelling analysis of the Personal Injury Trust can be undertaken by a professional adviser. The purpose being to estimate how long the beneficiary will be able to meet his or her anticipated outgoings before the Trust assets are exhausted.
The cash flow modelling analysis will highlight to the trustees the investment growth required to enable the Trust assets to meet the beneficiary’s financial needs for the rest of his or her life.
Cash flow planning can become a good tool to effectively help present to the trustees the “bigger picture” at the outset, and on an ongoing basis when reviewing assets of the Personal Injury Trust with their financial adviser.
How Nelsons can help
At Nelsons, we can provide advice and assistance in relation to cash flow modelling for a Personal Injury Trust and the options available to the trustees. Please get in touch with Zoe or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.